Japan’s Professional Work Discretionary Labour System

In Japan, discretionary labour contracts are quite common for software developers. Under this particular system, developers are granted significant freedom to organize both when and how they work.

The laws around the discretionary labour system are complex and evolving, though, so it’s important for participants to remain up to date. If you’re a software developer who has signed a discretionary labour contract, then you should understand how it works and what employee rights and protections you’re entitled to.

What is the discretionary labour system?

Japan’s discretionary labour system (裁量労働制, sairyou roudou-sei) is a way to account for the working hours and payment of employees in positions that allow them to use considerable discretion in how they perform that labour. Discretion, in this case, means choosing both how to execute work tasks, and when to do so. Therefore, the discretionary labour system is often used for jobs in which it would be difficult to directly equate the exact number of hours worked to a certain amount of labour or output, or in cases where the worker is assumed to have the expertise needed to act autonomously, without detailed instructions from management.

For example, if the assumed work schedule is set at eight hours a day, you could work for six or seven hours some days, and nine or ten on others. So long as your tasks were being completed in an appropriate and timely fashion, you would not be penalized by management for the short days; by the same token, you would not receive any overtime for the longer work days. You would, however, receive additional pay if you were required by your company to work between 10 p.m. and 5 a.m., as required by the Labour Standards Act.

The professional work system

There are two types of discretionary labour system: the professional work system, and the planning work system. Only 20 professions are permitted to use the professional work discretionary system, and the employer must meet a high standard of proof that the role calls for significant autonomy on the part of the worker.

For a workplace to use this system, labour and management must come to an agreement beforehand on the number of hours employees will be compensated for. The Labour Standards Act is quite specific about what must be covered in the agreement, and several amendments introduced a number of new requirements as of April 2024.

This agreement must be carried out between the company and the workers’ union or, if there is no union, an employee representative. Employees must also be fully informed about the system, and each employee is required to individually consent to being compensated using this practice.

Who is eligible

The following 20 roles are considered eligible to use the professional work discretionary labour system.

1. Research and development of new products or technologies, or research in the humanities or natural sciences
2. Analysis or design of information processing systems (referring specifically to systems combining elements of information processing via computers as a foundation for software design. This also applies to item 7.)
3. Reporting or editing tasks in newspaper or publishing businesses, or reporting or editing tasks for the production of broadcast programs or cable radio broadcasts as defined in Article 2, Paragraph 28 of the Broadcast Law (Law No. 132 of 1950)
4. Developing new designs for clothing, interior decoration, industrial products, advertising, etc.
5. Working as a producer or director in the production of broadcast programs, films, etc.
6. Copywriting work related to creation of content or feature descriptions for products in advertising or publicity
7. Work involving the identification of problems in business operations using information processing systems, or the creation/advising on utilizing said methods (system consulting)
8. Work involving the conception, expression, or advice on the arrangement of lighting fixtures, furniture, etc. in buildings (interior design)
9. Creation of game software
10. Work involving the analysis or evaluation of securities markets trends and values, and providing advice on investments based on said analysis (securities analyst)
11. Development of financial products using knowledge of financial engineering
12. Professor research tasks at universities as defined by the School Education Act (Law No. 26 of 1947, limited to those mainly engaged in research)
13. Work involving the research and analysis of client mergers and acquisitions, providing guidance on related concepts at banks or securities companies (M\&A advisor)
14. Certified public accountants
15. Attorneys
16. Architects (first-class, second-class, and architects of wooden structures)
17. Real estate appraisers
18. Patent attorneys
19. Tax accountants
20. Small/medium business management consultants

Note that software development is not specifically listed as a profession.

Does software development fall under the discretionary labour system?

Whether software development work typically falls under this system has already been subject to scrutiny by both the courts and the Tokyo Labour Bureau.

Developers and engineers vs programmers

The Bureau published a detailed analysis in its brochure “For the Proper Introduction of the Discretionary Labour System for Professional Work,” which includes expanded definitions and explanations of the qualifying professions.

In Japan, “programmer” and “software engineer” are distinctly different roles.

This becomes relevant because the Bureau defines an information processing system as “a system composed of elements such as computer hardware, software, communication networks, and programs for processing data, with the purpose of organizing, processing, storing, searching etc. of information.”

Next, they specify that the work of analyzing or designing those systems, which is eligible for the discretionary labour system, should be defined as:

. . . (i) determining the optimal business processing method based on understanding needs and analyzing user tasks, selecting models that conform to this method, (ii) designing input/output, processing procedures, etc., determining the details of machine configuration, software, etc. and (iii) evaluating the system after the system is operational, discovering problems, and improving to solve them.

However, the Bureau then states: “Programmers [emphasis added] who design or create programs are not included.”

This assertion that programmers are not eligible is repeated in the “game software creation” category, in which the Bureau says again, “It does not include those who perform programming without discretion solely based on the specific instructions of others.”

The “discretion” mentioned in the Bureau’s explanation is the difference between a programmer and a software engineer in Japan, and is why programmers do not fall under the discretionary labour system and software engineers do.

The chance to exercise discretion

The distinction between eligible and ineligible roles comes down to more than just a job title. The Kyoto District Court ruled in 2011 that actual tasks performed are the basis for a worker’s eligibility or ineligibility for the discretionary labour system, not the job title or role description.

The planning work system

Unlike the professional work system, this system is not limited to certain professions. Instead, it is potentially applicable to anyone who is, according to the Labour Standards Act, involved in the work of “planning, drafting, researching, and of analyzing particulars involved in business operations, for which the employer will not give concrete directions regarding things such as decisions about how that work is carried out and the allocation of time to that work, since the nature of the work is such that, in order for it to be carried out properly, the way in which it is carried out needs to be left largely to the discretion of the worker.”

Since there is no restricted list of professions, the Labour Standards Act is much more strict with how the system can be implemented, and requires that the employer establish a dedicated labour-management committee.

Typically, developers’ work will fall under the professional work system, not the planning work system, so this article focuses on the former.

The discretionary labour system is not flextime

There’s some confusion around the nature of the discretionary labour system and when it can or should be applied. Many international developers hear about the flexibility provided by the discretionary labour system and conflate it with flextime. However, since flextime is actually a separate concept under Japanese labour law, this could lead to trouble down the line.

There are several other working hours systems in Japan that otherwise permit businesses to be more flexible with workers’ schedules; however, these are less likely to be confused with the professional work discretionary labour system than flextime.

Flextime is legally defined in Japan as a system in which employees can choose their work hours within a three-month period, potentially with a “core period” during which employee hours overlap. The average weekly working hours over that three-month period cannot exceed 40 hours (or, in some industry-dependent cases, 44 hours).

Another major difference between these systems is that the actual number of hours worked still matters in flextime agreements. Employees are expected to work a certain number of hours, they just have a choice (over that three-month period) about exactly when they work those hours.

In addition, flextime labour-management agreements are only good for three months or less. By contrast, discretionary labour agreements last longer, typically up to three years.

The rules

The Labour Standards Act is very specific on what matters need to be included in the labour-management agreement for implementing the professional work discretionary labour system. Aside from expanding some of those requirements, amendments passed in 2023 also clarify that, separate from the group agreement, employees must consent on an individual basis to being compensated in this fashion.

The labour-management agreement must specifically address the following points to be considered valid:

• The types of work covered
• The time for which an employee is deemed to have worked (“deemed working hours”)
• That the employer will not give specific instructions on work methods or time allocation
• What measures will be taken to ensure the health and welfare of covered employees
• How complaints will be handled
• How employees can withdraw their consent to participating in the system if they so desire
• The effective term of the labour-management agreement

The agreement cannot be automatically renewed, but must be renegotiated each time it expires. The Ministry of Health, Labour, and Welfare officially recommends—but does not require—that the agreement not last longer than three years.The labour-management agreement is not the same as an individual’s employment contract; employment contracts referring to a discretionary labour agreement can be shorter or longer than the agreement itself.

Employee consent

As mentioned before, it’s quite normal for software developers to be compensated under the discretionary labour system, so long as you understand what you are agreeing to. That’s why those same amendments also state that employees must not only individually consent to this system, but give informed consent.

If the system is not adequately explained to employees in advance, then legally the system does not apply to that period of work. In other words, if the courts later find that the company misled or misinformed employees before obtaining their consent, then the company will owe those employees overtime and potentially other compensation or damages.

Each employee’s consent must be in writing; verbal agreement is not enough, particularly since the employer is also required to keep records of employees’ consent for several years. That consent can also be withdrawn on an individual basis, and the amendments specifically prohibit companies from “treating disadvantageously” employees who don’t consent.

Health and welfare measures

To adequately address covered employees’ health and welfare, companies must select at least one option from each of the following categories.

Measures for all covered employees:

• Ensuring a certain amount of time before the end of one shift and the start of another
• Limiting the amount of late-night work
• Setting limits on working hours (in the case that a covered employee has previously worked in excess of a certain number of working hours)
• Encouraging of the use of annual paid leave, including a large number of consecutive days of annual paid leave

Measures taken in accordance with the condition of individual covered employees:

• Offering face-to-face guidance from a physician for employees who have worked for more than a set number of hours
• Providing compensatory or special days off
• Providing health checkups
• Setting up a consultation service for mental and physical health issues
• Reassigning employees to an appropriate position
• Providing advice and guidance from an industrial physician

Conclusion

The discretionary labour system can be highly convenient for both workers and employers. Permitting employees to exercise discretion over their working methods and hours frees them to do their jobs as efficiently and effectively as possible. Meanwhile, setting “deemed work hours” in advance relieves the company of the burden of tracking employees’ schedules and paying for unexpected overtime.

But a system this complex is prone to both misunderstandings and potential exploitation. Therefore, if your company is using the professional work discretionary labour system, knowing the system’s limitations and requirements helps ensure that both you and your company remain in compliance with the law.

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